Company types in Mauritius

116

117 - Exemption from the requirement to have a local senior executive or director in the

company who can serve as company secretary. Section 164 (1) a.

- Exemption from the duty of redemption, obligation to indemnify and so forth.

Sections 178 and 179.

- Exemption from the requirement to prepare an annual report. Sections 218-222.

- Exemption from the requirement to prepare an annual return. Section 223.

- Exemption from official inspection of the company and corporate documents.

Sections 225 and 228.

The following exemptions apply only to GBC2 companies:

- Exemption from paying in share capital (in cash). Section 57.

- Exemption from the requirement to use a local company secretary. Sections 163-167.

- Exemption from accounting obligations, the duty to preserve important corporate documents and the obligation to use an auditor. Sections 193-195 and 210-217.

This means that a GBC1 does have an obligation to keep.

- Exemptions from a number of local registration obligations and requirements to provide documents: to use a local agent, to provide key documents (articles of association and so forth), and to submit the names of directors, changes to the articles or to the officers of the company, and possible voluntarily prepared accounts, etc, to the registrar. Section 273.

Broad opportunities are provided to move a company fairly simply into and out of Mauritius. A GBC1 has some obligation to prepare accounts. These must be compiled in accordance with the International Accounting Standards (IAS) as defined in section 2. The Commission has little information about how these accounting requirements are enforced in practice, and what real enforcement opportunities exist. It is also questionable how appropriate they are for enforcement without other provisions. Nor do the accounts have any significant local interest, since GBC1s and GBC2s are by definition unable to pursue local operations (see above) and corporation tax is

insignificant. The accounts are only submitted to the Financial Services Commission, and are not accessible to the public (users of the accounts).

Few provisions in the Companies Act are accompanied by any sanctions, particularly for GBC1s and GBC2s. In those cases where a sanction exists, the maximum penalty is low and limited to fines (see sections 329, 330). The exception is cases which fall under section 332 (false statements), where the penalty is five years imprisonment.

In the event of breaches of the accounting legislation, the Commission takes the view that the secrecy rules will also pose a considerable problem. A company’s contractual partners, creditors and so forth basically have no opportunity for insight into the company’s operations. As a result, they will not be in a position to report violations or to demand explanations for uncertainties affecting the accounts.

The tax regulations are of particular significance. Mauritius has a dual tax regime – one for nationals and the other for foreigners. The tax regime for foreigners is substantially more favourable than the one for citizens, with lower tax rates and reduced reporting requirements. Foreigners pay no tax on capital gains, wealth,

118

inheritance or royalties. Nor does Mauritius charge a withholding tax when foreigners transfer income from there to their country of domicile. The regulations described above mean that the type of fund in which Norfund invests in Mauritius has a fairly narrow tax base in that country.

GBC1-type companies have a nominal corporation tax rate of 15 percent, but can credit tax paid abroad against their liability in Mauritius. Even if they cannot produce documentary evidence of tax paid abroad, they receive an automatic discount for such payments which corresponds to 80 percent of the nominal tax rate. This means that the real rate of corporation tax for such companies is three percent. Various

facilitators in Mauritius advertise on the internet that exemption from Mauritian tax can be granted on application to the government. GBCs on Mauritius accordingly appear to have a zero-tax regime.

GBC1 companies can take advantage of the tax treaties Mauritius has signed with other countries. Most African countries which tax capital gains, for example, apply a rate in the 30-35 percent range. However, the tax treaties assign the right to tax capital gains to the country in which the investor (company) is domiciled. This means that, if a GBC1-type company realises capital gains in an African country (or in India⁸³), the right to tax is assigned to the country of domicile (Mauritius) and not to the source country. The tax treaties also contribute to reducing withholding taxes on dividends.

Nearly all African countries levy such withholding taxes on dividends, with the rates varying between 10 and 20 percent. The tax treaties reduce this type of tax to 0.5 or 10 percent respectively, depending on the country concerned.

Corporation tax for GBC2-type companies is zero, and no other types of taxes are levied either. Such companies cannot take advantage of the Mauritian tax treaties.

They have no obligation to produce accounts and do not need to meet requirements for local representation through front persons of any kind. GBC2 companies can be established in the space of 48 hours. The sum total of all the liberal provisions applied to this type of company makes it very difficult, even after a request for access, to obtain any information. Since their investors cannot take advantage of tax treaties, but are covered by secrecy and a zero-tax regime, GBC2-type companies are very suitable hiding places for money and other types of tax evasion.

Protected cell companies (PCCs). Such companies can divide their assets and

liabilities into different cells, each of which has its own name and represents a single asset (or asset class). The total number of cells thereby comprises the whole company.

The most important reason for permitting such companies is that they provide very good protection against creditors and third-country governments. Moreover, Mauritius derives an income from the registration of each cell, and requests for access to

information from each cell also incurs charges.

PCCs are often used by insurance companies and various types of funds (for pensions or investment, for example). They are covered by the same tax regime as GBC1

83 Mauritius has tax treaties with 16 African nations and India, among others. Norfund has located funds in Mauritius aimed at Sri Lanka and Costa Rica. Mauritius has a tax treaty with the first of these, but not with the second.

119 companies, and can credit tax paid abroad even if it is hypothetical. A company which invests in a tax-favoured object can, for instance, credit tax paid abroad as if the investment were made in a non-favoured object by calculating what the tax would have been for such an object. Favourable arrangements of this type mean that the tax burden in practice is probably zero for PCCs. Such companies can take advantage of Mauritian tax treaties. No open registry of PCCs exists, and they are thereby also covered by the secrecy regime.

Companies which take advantage of the tax regime for foreigners cannot operate locally, use the local currency or employ locals on any scale other than through nominees. The latter can be appointed as senior executives or directors for hundreds of companies. The Commission has explained in chapter 3 that the number of

companies represented by each nominee is so large that, if they actually managed the companies in which they are employed – or participated, for that matter, in any substantial activity at company or board level – the operation of these enterprises would not have been rational in business management terms.

The lack of real activity in these companies makes the use of the domiciliary principle as the basis for the tax treaties extremely dubious.⁸⁴ In reality, these are shell

companies and funds to which Mauritius offers a location for a nominal fee to the government and for very low taxes protected through tax treaties. This is an example of a harmful structure, whereby Mauritius offers investors the opportunity to establish an additional domicile which allows the investor to exploit what amounts in practice to a virtually zero-tax regime. In reality, the source country is robbed of tax on capital income through this type of structure, while the tax-related outcome for the investor is very favourable.

The differences between GBC1 and GBC2 companies are very important in practice, and they are directed at different target groups. GBC1 is aimed at owners who want to take advantage of the tax treaties with transactions into and out of Mauritius. The requirement is that the company is regarded as resident in Mauritius and can be considered the beneficial owner of the relevant income stream within the provisions of the tax treaty. How far these terms are fulfilled is often uncertain. That rests on the facts in each case, which cannot be established because of the secrecy rules without access to the company’s accounts and other documentation.

The next question is whether the exemptions applied to GBC1 companies are of such a character that it would not be natural to conclude that the company has the

necessary local connection, both under the tax rules of other countries and under the tax treaties. Particularly problematic is the concept of special arrangements and exemptions for companies which are only going to operate in other states, which can only be owned by foreigners and which cannot own real property locally. This means that those affected by the company’s operations are exclusively resident in other jurisdictions, without the right to access tax documentation from the company except through a rogatory letter to the courts. It is also uncertain whether any documents of

84 It is conceivable that the front persons have outgoings in connection with managing a company, but such expenditure cannot be regarded as real activity.

120

significance for the company are held locally. Taken together, this contributes to giving foreign companies a limited local connection. The Commission would point to this aspect without expressing any further view on the legal and other questions it raises.

In the Commission’s view, the characteristic features of GBC1 and GBC2 companies are not significantly different from company structures in other tax havens.